CALGARY, Nov. 22, 2017 /CNW/ – Connacher Oil and Gas Limited (“Connacher” or the “Company”) announces its financial and operating results for the three and nine months ended September 30, 2017 (“Q3 2017”) (all amounts are in Canadian dollars unless otherwise noted).
Through improved pricing, major cost structure reductions, and high operational reliability, the Company continued to improve its operating netback and adjusted EBITDA in Q3 2017.
Financial
- Q3 2017 and YTD 2017 revenue, net of royalties, increased to $55.9 million (Q3 2016 – $31.7 million) and $156.7 (YTD 2016 – $66.3 million), respectively, due to higher sales volumes and higher crude oil benchmark pricing. In 2017, the Company entered into fixed price sales agreements, which added incremental revenue for Q3 2017 and YTD 2017 totaling $5.9 million and $10.0 million, respectively
- Q3 2017 and YTD 2017 adjusted EBITDA increased to $9.7 million (Q3 2016 – deficit of $4.1 million) and $18.4 million (YTD 2016 – deficit of $45.5 million), respectively, primarily due to higher revenue, net of royalties, partially offset by higher input costs associated with increased production
- Q3 2017 and YTD 2017 funds used were $4.8 million (Q3 2016 – funds used of $13.1 million) and $19.8 million (YTD 2016 – funds used of $70.7 million), respectively, primarily due to an improved adjusted EBITDA, partially offset by higher interest costs
- In Q3 2017 and YTD 2017, the Company generated net losses of $222.8 million (Q3 2016 – net loss of $34.3 million) and $262.9 million (YTD 2016 – net loss of $447.1 million), respectively. In Q2 2016 and Q3 2017, the Company recorded impairments of $332.0 million and $210.0 million, respectively, which related to its property, plant, and equipment (“PP&E”) assets
- YTD 2017 capital expenditures totaled $4.2 million (YTD 2016 – $2.0 million) and focused primarily on well servicing. In Q2 2017, the Company completed its well restart program. At September 30, 2017, all 41 well pairs were on production
- Connacher closed Q3 2017 with a cash balance of $35.0 million (including restricted cash of $7.1 million) (Q4 2016 – $17.8 million)
Operational
- Q3 2017 and YTD 2017 production increased 29% to 12,812 bbl/d (Q3 2016 – 9,947 bbl/d) and 52% to 12,312 bbl/d (YTD 2016 – 8,095 bbl/d), respectively, due to the completion of the Company’s restart program in Q2 2017
- Q3 2017 and YTD 2017 blending costs increased 32% to $12.6 million (Q3 2016 – $9.6 million) and 69% to $40.3 million (YTD 2016 – $23.9 million), respectively, primarily due to higher total diluent volumes associated with increased bitumen production and higher diluent pricing
- Q3 2017 transportation and handling costs increased 92% to $9.3 million (Q3 2016 – $4.8 million) due to the increase in dilbit sales volumes. YTD 2017 transportation and handling costs increased 10% to $25.5 million (YTD 2016 – $23.2 million) as substantial penalties for non-delivery were incurred in the first half of 2016
- Q3 2017 and YTD 2017 production and operating expense increased 29% to $21.4 million (Q3 2016 – $16.5 million) and 29% to $62.9 million (YTD 2016 – $48.7 million), respectively, primarily due to higher natural gas costs associated with increased bitumen production
Q3 2017 Financial Highlights
FINANCIAL (1) |
Q3 2017 |
Q3 2016 |
YTD 2017 |
YTD 2016 |
|
Revenue, net of royalties |
$55,854 |
$31,711 |
$156,740 |
$66,292 |
|
Adjusted EBITDA (2) |
9,713 |
(4,061) |
18,367 |
(45,539) |
|
Net loss |
(222,812) |
(34,296) |
(262,884) |
(447,088) |
|
Basic per share |
(7.86) |
(1.21) |
(9.28) |
(15.78) |
|
Diluted per share |
(7.86) |
(1.21) |
(9.28) |
(15.78) |
|
Funds used (3) |
(4,773) |
(13,051) |
(19,758) |
(70,708) |
|
Capital expenditures |
1,516 |
116 |
4,171 |
1,950 |
|
Cash on hand (4) |
35,044 |
17,336 |
|||
Working capital deficiency |
(292,651) |
(269,969) |
|||
Long-term debt |
– |
– |
|||
Shareholders’ equity |
215,300 |
77,442 |
(1) |
($ 000) except per share amounts |
(2) |
Adjusted EBITDA is a non-GAAP measure and is defined in the “Advisory Section” of the Q3 2017 MD&A and is reconciled to net loss under “Reconciliations of Net Loss to EBITDA, Adjusted EBITDA, and Bitumen Netback” |
(3) |
Funds used is a non-GAAP measure and is defined in the “Advisory Section” of the Q3 2017 MD&A and is reconciled to cash flow from operating activities under “Reconciliations of Cash Flow From (Used in) Operating Activities to Funds Used” |
(4) |
Balance includes restricted cash of $7.1 million, pursuant to the terms of the Initial Order granted in the Company’s CCAA proceeding before the Court of Queen’s Bench of Alberta, Judicial Centre of Calgary |
Q3 2017 Operational Highlights
OPERATIONAL |
Q3 2017 |
Q3 2016 |
YTD 2017 |
YTD 2016 |
Average benchmark prices |
||||
WTI (US$/bbl)
|
$48.20 |
$44.94 |
$49.47 |
$41.33 |
WTI ($/bbl) |
60.74 |
58.85 |
64.61 |
54.42 |
Heavy oil differential (US$/bbl) |
(9.94) |
(13.50) |
(11.88) |
(13.68) |
WCS ($/bbl) |
48.21 |
41.17 |
49.09 |
36.41 |
$/US$ exchange rate |
1.26 |
1.31 |
1.31 |
1.32 |
Production and sales volumes (1) |
||||
Daily bitumen production (bbl/d) |
12,812 |
9,947 |
12,312 |
8,095 |
Daily bitumen sales (bbl/d) |
12,742 |
9,904 |
12,267 |
8,306 |
Bitumen netback ($/bbl) (2)(3) |
||||
Dilbit sales |
$41.33 |
$29.98 |
$40.56 |
$24.83 |
Blending of products sold |
(4.08) |
(5.39) |
(5.19) |
(6.02) |
Realized bitumen sales price |
37.25 |
24.59 |
35.37 |
18.81 |
Transportation and handling costs |
(7.93) |
(5.32) |
(7.60) |
(10.17) |
Net realized bitumen sales price |
29.32 |
19.27 |
27.77 |
8.64 |
Royalties |
(0.39) |
(0.31) |
(0.61) |
(0.18) |
Net bitumen revenue price |
28.93 |
18.96 |
27.16 |
8.46 |
Production and operating expenses |
(18.26) |
(18.17) |
(18.78) |
(21.42) |
Bitumen netback |
$10.67 |
$0.79 |
$8.38 |
$(12.96) |
(1) |
The Company’s bitumen sales and production volumes differ due to changes in inventory and product losses |
(2) |
A non-GAAP measure which is defined in the “Advisory Section” of the Q3 2017 MD&A. Bitumen netback is reconciled to net loss under “Reconciliations of Net Loss to EBITDA, Adjusted EBITDA, and Bitumen Netback”. Bitumen netbacks per barrel amounts are calculated by dividing the total amounts presented in the “Bitumen Netback” table on page 8 by bitumen sold volumes as presented in the “Production and Sales Volumes” table on page 7, with the exception of dilbit sales (presented as dilbit sales divided by dilbit sales volume) and diluent costs (presented as the cost of diluent in excess of the dilbit selling price) |
(3) |
Before risk management contract gains or losses |
Companies’ Creditors Arrangement Act (“CCAA”) Proceeding and Status
On March 31, 2016, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and certain lenders constituting the “Required Lenders” in respect of US$153.8 million of loans made by the lenders (the “Lenders”) under the credit agreement dated as of May 23, 2014 (as amended, restated, supplemented, or otherwise modified from time to time, including as amended pursuant to Amendment No. 1 dated May 8, 2015) (the “Amended Term Loan Facility”). Under the terms of the Forbearance Agreement, the Lenders agreed to, among other things, forbear from exercising enforcement rights and remedies arising from the Company’s failure to pay the cash interest and principal payments due on March 31, 2016 until the earlier of April 30, 2016; the occurrence of an event of default under the Amended Term Loan Facility, unrelated to the failure to pay principal and interest due on March 31, 2016; or the occurrence of a default or breach of representation by the Company under the Forbearance Agreement.
On April 30, 2016, the Company entered into a second forbearance agreement (the “Second Forbearance Agreement”) which extended the forbearance period until May 16, 2016.
On May 17, 2016, the Company sought and obtained creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”) pursuant to an order (the “Initial Order”) granted by the Court of Queen’s Bench of Alberta, Judicial Centre of Calgary (the “Court”). The Court granted CCAA protection for an initial period expiring on June 16, 2016. Since the Initial Order, six Court-ordered extensions have been obtained, with the most recent extending the stay of proceedings until and including January 31, 2018 (the “CCAA Stay Period”).
Under the Initial Order, Ernst & Young Inc. was appointed by the Court as the monitor (the “Monitor”).
The CCAA is a federal insolvency statute that allows an insolvent company which owes creditors in excess of $5 million to restructure its business and financial affairs and stays creditors and others from enforcing rights against the insolvent company.
The Initial Order also approved and authorized the Company and the Monitor to conduct a sale and investment solicitation process (the “SISP”), as set out in Schedule “A” to the Initial Order, to identify one or more purchasers and/or investors in the Company’s business and/or property.
As authorized and approved by the Initial Order, the Company secured interim financing in the form of a senior secured debtor-in-possession credit facility (the “DIP”) from certain existing lenders (certain of which are also significant shareholders of the Company) (the “Interim Lenders”) for up to US$20 million (collectively, the “Total DIP Commitments”), with initial commitments of up to US$11.5 million (the “Initial Commitments”).
On October 26, 2016, the Company entered into a Waiver, Approval, and Modification Agreement (the “First DIP Amendment Agreement”) with its Interim Lenders related to the DIP. Pursuant to the First DIP Amendment Agreement, the Interim Lenders agreed to waive certain limited defaults under the DIP related to the CCAA SISP timelines and advanced to the Company an additional amount of approximately US$5.0 million of the Total DIP Commitments initially authorized by the Court to support the Company’s continuing operations. At September 30, 2017, the Company had drawn approximately US$16.5 million of the DIP.
On December 16, 2016, the Company entered into a further Approval and Modification Agreement (the “Second DIP Amendment Agreement”) with the Interim Lenders related to the DIP. The Second DIP Amendment Agreement extended the maturity date under the DIP from May 17, 2017 to December 31, 2017 and amended certain provisions of the DIP in order to provide the Company with greater flexibility to enter into hedging agreements and other long-term contracts.
On June 27, 2017, the Company entered into Approval and Modification Agreement #3 (the “Third DIP Amendment Agreement”) with the Interim Lenders with respect to the DIP. The Third DIP Amendment Agreement extended the maturity date of the DIP from December 31, 2017 to January 31, 2018 to correspond with the current CCAA stay expiry date of the Company’s CCAA proceeding.
As at September 30, 2017, in connection with the CCAA proceeding, the Company identified the following obligations subject to potential compromise:
(Canadian dollars in thousands) |
||
Current and long-term portions of Amended Term Loan Facility |
$200,535 |
|
Interest payable on Amended Term Loan Facility |
43,671 |
|
Convertible Notes |
44,000 |
|
Interest payable on Convertible Notes |
15,884 |
|
Trade and accrued liabilities |
17,490 |
|
Total liabilities subject to compromise |
$321,580 |
The aforementioned obligations, subject to potential compromise, represent the amounts expected to be resolved through the CCAA proceeding and remain subject to future, potentially material, adjustments. The liabilities that are not subject to the CCAA proceeding are excluded from the liabilities subject to potential compromise and include certain non-restructuring liabilities incurred subsequent to May 17, 2016.
The Company continues to investigate, evaluate, and consider possible sale and restructuring alternatives.
Operations
Based on field estimates, October 2017 production was approximately 13,200 bbl/d.
About Connacher
Connacher is a Calgary-based in situ oil sands developer, producer, and marketer of bitumen. The Company holds a 100 per cent interest in approximately 447 million barrels of proved and probable bitumen reserves and operates two steam-assisted gravity drainage facilities located on the Company’s Great Divide oil sands leases near Fort McMurray, Alberta.